BT - PPT - Class 1

Business Transformation/
Business Process Reengineering

October - December, 2016 (Lecture 1)
FORE School of Management

Prof Raman Sethi & Vineeta Kumar
BUSINESS TRANSFORMATION OCT DEC 2016 - PROF RAMAN SETHI & VINEETA KUMAR
FORD MOTOR COMPANY

In the early 1980s, when the American automotive industry
was in a depression, Fords top management put accounts
payable - along with many other departments - under the
microscope in search of ways to cut costs
Accounts payable in North America alone employed more
than 500 people
Ford was enthusiastic about its plan to tighten accounts
payable
Until it looked at Mazda.
FORD MOTOR COMPANY

While Ford was aspiring to a 400-person department, Mazdas
accounts payable organization consisted of a total of 5 people
The difference in absolute numbers was astounding, and even
after adjusting for Mazdas smaller size
Ford figured that its accounts payable organization was five
times the size it should be
The Ford team knew better than to attribute the discrepancy
to calisthenics, company songs, or low interest rates
FORD MOTOR COMPANY

Background/Problems: Ford needed to review its procurement
process to:
Do it cheaper (cut costs)
Do it faster (reduce turnaround times)
Do it better (reduce error rates)
FORD MOTOR COMPANY
BUSINESS TRANSFORMATION SEPT DEC 2016 - PROF RAMAN SETHI & VINEETA KUMAR
FORD MOTOR COMPANY

SYSTEM DRAWBACKS:
Fords accounts payable organization was performed by so

many people
The department spent most of its time on mismatches,
instances where the purchase order, receiving document, and
invoice disagreed
In these cases, an accounts payable clerk would investigate
the discrepancy, hold up payment, generate document, and
all in gum up the works
Its process was not efficient
FORD MOTOR COMPANY

SUGGESTED IMPROVEMENT
The management thought that by rationalizing processes and
installing new computer systems, it could reduce the head
counts
One way to improve things might have been to help the
accounts payable clerk investigate more efficiently
but a better choice was to prevent the mismatches in the
first place
FORD MOTOR COMPANY

Possible Fix:
Automation would bring 20% saving but Ford chose not to Why?
technology needed to automate the process was not
available?
nobody could develop the technology to automate the
process?
not enough computers/computer-literate employees at
Ford?
Correct answer: Mazda showed how to do it with 15 people!
FORD MOTOR COMPANY

SUGGESTED IMPROVEMENT
Ford instituted invoiceless processing

Now when the purchasing department initiates an order, it
enters the information into an on-line database
It doesnt send a copy of the purchase order to anyone. When
the goods arrive at the receiving dock, the receiving clerk
checks the database to see if they correspond to an
outstanding purchase order
If so, he or she accepts them and enters the transaction into
the computer system. (If receiving cant find a database entry
for the received goods, it simply returns the order)
FORD MOTOR COMPANY
10
FORD MOTOR COMPANY
Ford reengineered the process

Now its fast and efficient
The new process cuts head count in accounts payable by 75%
Eliminates invoices
Improves accuracy
Matching is computerized
11
FORD MOTOR COMPANY
CONCLUSION:
Ford discovered that reengineering only the accounts payable
department was futile
The appropriate focus of the effort was what might be called
the goods acquisition process, which included purchasing and
receiving as well as accounts payable
When Ford reengineering its payables, receiving clerks on the
dock had to learn to use computer terminals to check
shipments, and they had to make decisions about whether to
accept the goods
12
FORD MOTOR COMPANY
CONCLUSION:
Purchasing agents also had to assume new responsibilities-like
making sure the purchase orders they entered into the
databases had the correct information about where to send
the check
Attitudes towards vendors also had to change: vendors could
no longer be seen as adversaries; they had to become
partners in a shared business process
13
FORD MOTOR COMPANY

CONCLUSION:
Vendors too had to adjust
In many cases, invoices formed the basis of their accounting
systems
At one ford supplier adapted by continuing to print invoices,
but instead of sending them to Ford threw them away,
reconciling cash received against invoices never sent
14
Example
Airline Ticketing history
Evolution
software
Inter globe
Amadeus
Galileo
15
Environment - circumstances are continuously changing.
Power Sector Overview
The survival of any organization depends on its capacity to

adapt to the changing environment
Political
Economical
Social
Technological
Legislative
Competitive
Cultural
16
Challenges
Organizations face challenges from:

Globalization
Deregulation
More competitors; lower margins
Oversupply of products; greater choice

Increased customer expectations
17
The Three Types of Business Pressure

Market Pressure:
The global economy and strong competition
The changing nature of the workforce
Powerful customers.
18

Technology Pressures:
Technological Innovation and Obsolescence
Information Overload.
19

Societal Pressure:
Social responsibility
Government regulation and Deregulation
Spending for social programs
Protection Against Terrorist Attacks.
Ethical Issues
20
Necessary
With this backdrop, it is essential for the organisation

to trim any flab
optimise its functioning
Fine tune all processes to achieve higher efficiency
levels
Re-look into its business processes through
the entire value chain from production to consumers
other suppliers
market place
BUSINESS TRANSFORMATION OCt DEC 2016 - PROF RAMAN SETHI & VINEETA KUMAR
21
Business Transformation
Business Transformation is a proactive approach on behalf of the

management to evaluate the opportunities to change, based on the
strengths and weaknesses of the organization
Dramatic
Business Process re-engineering (BPR)
Continuous
Kaizen philosophy: Continuous incremental improvements
Six Sigma
TQM (Total Quality Management)
Today firms must seek not fractional, but multiplicative levels of
improvement 10x rather than 10%
22
BPR - Hammer and Champy
BPR is the fundamental rethinking and radical redesign of

business processes to bring about dramatic improvements
in critical, contemporary measures of performance, such
as cost, quality, service and speed.
Rather than organizing a firm into functional
specialties (like production, accounting, marketing,
etc.)
Look at the tasks that each function performs
23
BPR - Hammer and Champy
Business Process Re-engineering or BPR is

the analysis and redesign of
workflow and processes
within and between
Organizations
24
BPR
Generic Circumstances that influence whether BPR is

advisable
Does the competition clearly outperform the company?
Are there many conflicts in the organization?
Is there an extremely high frequency of meetings?
Excessive use of non-structured communication?
(memos, emails, etc)
Is it possible to consider a more continuous approach of
gradual, incremental improvements?
25
Reengineering is not .
Automation of existing ineffective processes

Sophisticated computerization of obsolete processes
Playing with organization structures
Downsizing doing less with less
Automation : use technology to automate the AS IS
process to make it happen faster
Effectiveness: To improve service and satisfy customer
needs, while lowering costs
26

BPR involves an assessment of the business processes.
Focus
On whole processes
Streamlining of work processes
To shift people from non-thinking work to more productive

activities
Tackle more interesting, challenging work
27
BPR
It is the examination and change of five basic business

components:
Strategy
Process
Technology
Organization
culture
28

BPR involves an assessment of the business processes
A one-dimensional job (a task) will be eliminated, automated or

rolled into a bigger process
One-dimensional, repetitive work is exactly what computers, robots

and other machines are best at
And what human workers are poorly suited to and almost uniformly
despise
Managing a process instead of executing tasks makes all the
difference to the work ethos
29
The essence of BPR is

Transformation
30
A 4-Pronged Approach to Transformation

Transforming Process
Eliminate
Simplify
Automate
Base on Trust
Integrate
Join Up
Legislate
Using Technology
Enterprise Architecture
Standards
Unified Databases
Unified Networks
SOA
Portals
Transforming Channels
Transformation
Multiple Channels
24x7
Access
Common Service Centres
Mobile
Self-Service
Licensed Intermediaries
Transforming People
Training
Change Management
CRM skills
Consultation
Empowerment
Education
31
Awareness
Case: PEPSI
PepsiCo is a global food and beverage leader

Net revenues of more than $65 billion
A product portfolio that includes 22 brands that generate
more than $1 billion each in annual retail sales.
Company owned and Franchisee owned model
3 regions (earlier 4)
38 beverage plants and 3 food plant
32
Case: PEPSI
Multiple branch and regional offices
Production: Bottling Plant
Distribution: Warehouse Distributor Retailer Consumer
Deliver products and collect empty bottles
Collection: Distributor has to pay in advance
PEPSICO wants to remove the warehouses to free real estate
and reduce costs
PEPSICO needs to know the impact of this move
33
Case: PEPSI
Production Process
The empty bottles are washed and sanitised
The filling line fills the bottles, caps them and prints the date on the
neck
One line can only fill one product in one run
These are stored in a godown
Dispatched to the warehouse
34
Case: PEPSI
Distribution Process
Warehouse gets instructions from the region on the requirement of
each distributor
Logistics makes a route plan
Trucks are loaded
Product is delivered to the distributor and empties collected
35
Case: PEPSI
Financial collection
Distributor deposits a demand draft / cash at the regional office
Alternately sales agent collects the DD/ Cash
Distributor places an order for product requirement with the SA
36
Case: PEPSI
Discussion questions
How will removal of the warehouse affect the process?
Identify
The inefficiencies of the process
The bottlenecks
What type of Information system(s) would be required to address them?
What problems do you envisage in implementation of these systems?
37

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Business Transformation/

Business Process Reengineering

FORE School of Management

FORD MOTOR COMPANY

FORD MOTOR COMPANY

FORD MOTOR COMPANY

FORD MOTOR COMPANY

FORD MOTOR COMPANY

Fords accounts payable organization was performed by so

FORD MOTOR COMPANY

FORD MOTOR COMPANY

FORD MOTOR COMPANY

Ford instituted invoiceless processing

FORD MOTOR COMPANY

FORD MOTOR COMPANY

Ford reengineered the process

FORD MOTOR COMPANY

FORD MOTOR COMPANY

FORD MOTOR COMPANY

Environment - circumstances are continuously changing.

Power Sector Overview

The survival of any organization depends on its capacity to

Power Sector Overview

Organizations face challenges from:

More competitors; lower margins

Oversupply of products; greater choice

The Three Types of Business Pressure

The Three Types of Business Pressure

The Three Types of Business Pressure

Power Sector Overview

With this backdrop, it is essential for the organisation

Power Sector Overview

Business Transformation is a proactive approach on behalf of the

BPR - Hammer and Champy

Power Sector Overview

BPR is the fundamental rethinking and radical redesign of

BPR - Hammer and Champy

Power Sector Overview

Business Process Re-engineering or BPR is

Power Sector Overview

Generic Circumstances that influence whether BPR is

Automation of existing ineffective processes

Power Sector Overview

Streamlining of work processes

To shift people from non-thinking work to more productive

Power Sector Overview

It is the examination and change of five basic business

Power Sector Overview

A one-dimensional job (a task) will be eliminated, automated or

One-dimensional, repetitive work is exactly what computers, robots

The essence of BPR is

A 4-Pronged Approach to Transformation

PepsiCo is a global food and beverage leader

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